Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) CEO Jeroen van der Veer said on Monday that looking at current poor margins, the world has more oil refining capacity than needed.

But van der Veer said he is seeing early signs that Western gasoline and diesel markets are steadying after a slump late last year, adding that the next oil price spike may already be in the works due to the long lead time for investments to boost output.

It's a real cyclical industry. If you look at margins there's more refining capacity than one needs, he told reporters at a conference in the Malaysian capital.

Everyone has to decide what they can do, we prefer to refine more heavy crude, so that when refining margins are depressed, we can still make a bit of a living out of it.

He said that seasonal factors or destocking may have started to help the diesel and gasoline markets in the United States and Europe to stabilise.

We see signs of stabilisation, but it's very early days, he said. We hope that we see the signs correctly, it would be good news if it stays like that.

A senior Shell executive for retail in Europe told the Reuters Energy Summit last week that it has seen a pickup in demand for oil products across Europe in recent months. [ID:nL3121431]

But a major Asian trader, Hin Leong Trading, told the summit that the distillates market was still underperforming and was unlikely to return to its peak until the global economy picks up. [ID:nSP380811]

NEXT SPIKE IN THE MAKING

Van der Veer said investments in oil projects now have a lead time of about four to five years.

The system is slow to react. The next price spike may already be in the making, he earlier said in a keynote address to the Asia Oil and Gas Conference.

He also told reporters that one reason for the spikes in crude oil prices are trades in the derivatives markets.

Our people did a lot of studies on the oil price. For price spikes, the derivatives and open positions played a role, but we are less sure to say they were the culprit, he said, adding that the relationship between the paper and physical markets is a much more complex phenomenon.

Global crude prices CLc1 jumped to a record above $147 a barrel in July last year, before sliding to around $32 in mid-December. Prices have since rebounded to near $70.

Van der Veer said that liquefied natural gas (LNG), which only accounts for about 2 percent of world energy supply, is a growth industry for decades to come. We continue to see high demand for LNG.

There is a mismatch between where the gas is found and the market for the gas, he said. A lot of places need a lot of LNG ships.

Asked about the development of a floating liquefaction terminal for production of LNG in Asia, van der Veer said:

We think floating LNG will come in this part of the world. There are many small gas fields far away from the coast. The industry needs to find an economically viable solution but that is still quite a stretch.

Shell, which aims to become an exporter of LNG from Egypt using gas from offshore discoveries, is considering, among other options, a floating liquefaction terminal for production of its LNG in Egypt, but had said it was too soon to limit itself to one plan. (Writing by Ramthan Hussain; Editing by Michael Urquhart)

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